IFRS 9: Financial Instruments

IASB meeting summaries and observer notes

IASB / FASB 21 February 2011

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The boards discussed methods for estimating expected losses and the impairment accounting for purchased debt instruments.

At a previous meeting, the boards had tentatively decided that an entity should use the best available and supportable information at the date of estimation (historical, current, and forecast) to estimate expected losses. At this meeting, the boards tentatively decided that expected losses should be estimated with the objective of an expected value. They tentatively decided that the final standard will explain that an expected value identifies possible outcomes (or a representative sample of the possible outcomes), makes an estimate of the likelihood of each outcome and calculates a probability-weighted average.

However, the final standard will acknowledge that other appropriate methods could be used as a reasonable way to achieve the objective of an expected value. An example of a suitable method would be a loss rate method and the use of probabilities of default, loss given default and exposure at default data. In performing this calculation, an entity must not ignore observations and possibilities that are known. The boards directed the staff to draft language that will be clear to constituents who are applying this objective.

Regarding purchased debt instruments subject to impairment accounting, the boards discussed interest revenue recognition and impairment accounting. The discussion included making comparisons with the accounting proposed for originated instruments. The boards did not reach a decision on this question and asked the staff to prepare examples for further discussion.

Next steps

The boards will discuss these examples at next week's joint board meeting.